Companies spend more resources on hiring today than ever before. Research shows that hiring the wrong employees carries astronomical costs over time. Harvard Business Review and Forbes note that hiring the wrong person may be the most costly mistake a business can make due to lost time, money and productivity. Hundreds of resources advise startups to “spend more on hiring” and provide tips on expanding the interviewing process. But investing money recruiting a broad and diverse candidate pool to interview doesn’t guarantee a good hire. After reviewing theories and best practices from a range of recruiting experts, we talked with founders and CEOs from a variety of startups—from early-stage to established unicorn. We distilled findings into a recruiting framework that covers four primary stages necessary to build strong, productive, and cohesive teams. One common element emerged. Regardless of a venture’s stage, most founders need to spend more time on recruiting in four primary areas.
4 Key Stages of Recruiting
- Sourcing—Search for Talent before You Need It
- Interviewing—Go beyond Conventional Practices
- Onboarding—Create Processes that Set People Up for Success
- Assessing—Plan for Mistakes
In a series of related posts, we explore each stage in detail, revealing some surprising approaches to finding talent, retaining the best people, assessing your team, and firing underperformers. Here, Shikhar Ghosh talks with six experienced entrepreneurs about how to attract and retain top talent by spending time recruiting outside of conventional channels. Our Recruiting and Retention section provides practical and applicable tips on how to better prioritize your time at each stage of the recruiting process.
Sourcing—Search for Talent before You Need It
Finding the best talent is an ongoing process that requires founders and CEOs to invest time. Y Combinator’s Sam Altman advises that, even after attaining product-market fit, founders should spend “between a third and a half of your time hiring.” For early-stage startups, the percentage is even higher.
Many founders interpret the advice, to spend more time on recruiting, as setting aside time to interview candidates. But the time you invest in recruiting should start long before interviews commence. Adam Enbar, co-founder and CEO of Flatiron School learned to focus less on the interview stage. Instead, he spends time on begin interviewing matter most. His startup—a pioneering educational platform that is disrupting conventional higher education—has scaled rapidly thanks to the strength of its team.
I summarize my job as CEO doing three things: setting the vision, getting resources, and hiring and retaining a team. And that third one, hiring and retaining a team, is probably the single most important one—and the single hardest one.
Don’t Rely on Traditional Methods
Most startups invest time and money on advertising job postings and using recruiters to find talent. Both have shortcomings. Recruiters can seem worth the investment because they broaden your applicant pool. But even seasoned recruiters have only a superficial understanding of the role—the required skills and the job description. Lacking context about the role as it relates to the entire team, recruiters provide less effective means of evaluating people who might fit your needs perfectly.
Similarly, Enbar warns, don’t expect top talent to apply to your job posting. He elaborates, “these people are being pursued by everybody else. As a CEO, the majority of your job is selling—convincing the best people in the world” to come work for you. And that requires your time.
If you’re looking to build your core team or make a key hire, those people are not interviewing for jobs. Those people are being pursued by everybody else . . . As a CEO, the majority of your job is selling—convincing the best people in the world . . . to do this job. That’s why it demands so much time and attention.
Be Alert for Talent Everywhere You Go
Serial entrepreneur Lara Hodgson advises that founders should always stay alert for talent and make time to talk to potential new employees. Hodgson, co-founder, President, and CEO at Now Corp, a pioneering B2B payments company, shares, “Almost everyone we’ve hired, we went out and found them. They didn’t find us.” She elaborates, “Everything I do during the day, I’m looking for new employees. I met the person who bagged my groceries at the grocery store one time who gave me such good service, looked me in the eye, was so articulate that I handed him my card. He was in school at the time, studying accounting. I said, “When you graduate . . . you need to be on our team.”
You see someone’s behavior in their natural environment very differently than when they dress up and come in for the interview. Because some people just interview well. And then the minute they’re through with the interview, their real self comes out. So, we really try to find people where they are, not have them just line up to come in.
Rob Gierkink, founder of DataLogix and co-founder of three of the world’s largest cross-merchant loyalty programs, agrees that founders and CEOs should always be alert for talent. One of the most fruitful ways to discover the right people for your team, he found, is obtaining informal referrals from people you admire.
You’re always recruiting. Every single meeting I had—it didn’t matter whether it had nothing to do with that meeting—at the end of the meeting, I would always ask if they knew somebody with that background. You’d be surprised. Everybody—even potential customers—is flattered when you ask their opinion about a hire.
Referrals—both professional and personal—provide one of the most important streams of candidates and effective ways to attract the right people. Grow your contact network by continually asking colleagues you respect, “Who are the most talented people you know that would be ideal for my venture?” Keep a list and follow up with everyone. Better yet, Enbar suggests, follow the question, “Who’s the smartest person you know?” with “Can you make an introduction?”
Make Time to Expand Your Network & Meet People
At a growing startup, Enbar quips, “everybody needs to start being a recruiter . . . You have to hustle.” None of Flatiron’s key hires or leadership team resulted from a job posting or an executive search firm. “It was all through our network,” he shares—through channels like LinkedIn, introductions at events, and “clawing and scraping and . . . just finding a way to find the absolute smartest people.”
Your ability to grow or do anything meaningful is 100% dependent on your ability to bring on the best talent.
Interviewing—Go beyond the Conventional Practices
After identifying talent, most people use interviews to assess candidates. Most hiring managers evaluate candidates through different types of interviews—phone screens, individual, panel, sequential—including day-long sessions that involve lunch or dinner. Interviewers often rely on a combination of inputs—behavioral and situational questions, topgrading questions, a problem-solving session, and a few in-person meetings with leadership—to assess a candidate’s fit. But studies show that relying on interviews cannot effectively predict a candidate’s success in the role.
The next post in this series dives deeper into proven methods for reducing hiring problems. Plus, it gives practical tips for assessing candidates on four dimensions: mission, outcomes, competencies, and culture. Here, entrepreneurs share their insights and advice for startups that need to hire quickly. Learn why investing time in unconventional recruiting approaches may lead to better hires.
Serial entrepreneur and investor Dinesh Moorjani challenges that “conventional interviews . . . do not replicate what the real-life environment is working in a startup—which is essentially a massive pressure cooker.” Most interviews occur in a limited, somewhat staged setting. Some human resources experts recommend setting up a trial period so the candidate can start working with the team for up to 30 days before converting to full-time. At a startup that needs to move quickly, such a long trial period may not be viable. Moorjani, who as founder of Hatch Labs co-founded over 10 startups—including the iconic Tinder—devised equally effective tests.
Needing to build strong teams quickly, he invited top candidates to attend internal 48-hour Hack-a-Thons that he developed. The events provided a way to observe and assess candidates’ ability to work with others in the frenzied environment they would normally encounter as part of a Hatch team.
Working in a startup . . . you have to work in very tight time frames, deal with uncertainty and have situations where things go wrong every day. How someone reacts in that environment is completely different. So, you essentially have to test them in that environment.
That practice yielded more reliable information about the candidate than the most rigorous conventional interviewing questions. Hosting such testing events requires time, but it provides a chance to observe the candidate interacting with the team on a problem—in real-time. It gives insights into the person’s character—”Are they respectful? Do they show integrity? Do they demonstrate trust?”—that would not likely arise in an interview Q&A session.
Do they live by the value system . . . ? Are they willing to invest the time to do that? . . . If they’re not willing to do it, then you have to question their motivation for working with our team to build a startup.”
Reframing Reference Interviews
According to Kevin Ryan—serial entrepreneur of several New York-based businesses, including Gilt Groupe, Business Insider, and MongoDB—speaking with references can provide the most valuable insights into a candidate. But most people approach the reference interview incorrectly. Instead of relying on a list of contacts that a candidate offers, Ryan—who has been dubbed the “Godfather of Silicon Alley”—advises investing time in uncovering mutual acquaintances and conducting informal interviews about the candidate’s experience and attitude.
“Part of it is just spending a lot of time,” he admits, “we have to spend hours getting to people who know this person is” by finding colleagues who will speak candidly. The goal, he explains, “is to have as objective a conversation as possible. It’s never a precise process, but if I asked six people about you, I will start to see some commonalities.” The third post in this series provides practical tactics Kevin Ryan suggests for conducting better reference interviews.
Try to get to someone who knows them—ideally some people you have a relationship with. . . . You’re not trying to disqualify people, you’re just trying to understand what you’re getting.
Onboarding—Create Processes that Set People Up for Success
The recruiting process doesn’t end when the candidate accepts the offer. Onboarding provides the foundation for building a successful team. At a minimum, during their first week, new employees should feel welcomed and receive an orientation that introduces them to key staff and company culture.
Unlike orientation or training that occurs during specific times, an effective onboarding process lasts through employees’ first year, helping them feel motivated to perform. “Strong onboarding processes improve new-hire retention by 82 percent and productivity by over 70 percent,” according to research, whereas companies with ineffective onboarding processes are more likely to lose new hires in the first year.
Strengthen Communication across Departments
Hodgson describes the onboarding process as beneficial to everyone—the new hire, the current team, and customers. At NOW Corporation new hires shadow every department over the first week to develop a basic understanding of the entire lifecycle of the client.
[Onboarding] gives them a real appreciation for how the whole cycle works. How the customer’s experience from day one can go incredibly right or horribly wrong, and what their eventual role is in that.
Hodgson also observes that the onboarding process helps “give people a real appreciation for what their co-workers face every day in terms of their challenge in serving the client.”
Maintain a Sense of Mission & Connection as Your Startup Scales
Joris Poort co-founded Rescale, a pioneering cloud simulation platform that helps engineers and scientists build, compute, analyze, and scale simulations with high performance computing (HPC). As CEO, Poort has grown Rescale from a close-knit four-person team of engineers working to prove an idea to a company that leads the HPC industry, is valued at a half-billion dollars, and employs 150 people at five offices worldwide.
As Rescale grows, Poort continues to invest part of his time in the onboarding process. He explains, “I think one of the unique opportunities in a startup is to have a very direct line and relationship with everybody in the company” so he spends two hours each month all the new hires.
Why does Poort invest his time as CEO participating in the onboarding process for new hires while scaling his venture? As CEO, he models company culture. But he doesn’t just discuss company principles and cultural values. He explains, “I also share a lot of personal stories [to] give them an opportunity to get to know me as a real person, as opposed to this figurehead that is difficult to approach.” The fourth post in this series provides actionable strategies for creating a meaningful onboarding process.
Assessing—Plan for Mistakes & Changes
Despite following the best recruiting strategies and practices, you will make mistakes. A candidate who sailed through the hiring process may fail to perform or you may discover that someone who performs consistently is not aligned with the company culture. Knowing when you’ve made a hiring mistake can be tricky. Gierkink, who has built, scaled, and sold three companies notes, “I’ve almost always been right when, after hiring somebody, I’ve said, ‘I’m not sure if that person is going to work out.'”
Address Problems Quickly
He advises addressing the mistake quickly, “It can be embarrassing to say ‘I was wrong.’ But you have to fix it. The more it lingers, the worse it is.”
Lingering is never a good thing. And it’s not right for the person either. They’re not going to be successful in an environment that’s not a good fit for them.
Be Direct and Use Specific Examples
Gierkink advocates moving swiftly to mitigate the damaging effects of an obvious bad hire. That typically entails conducting conversations—over a period of weeks or months—that document underperformance, then ultimately suggest an appropriate change. Kevin Ryan explains, “If I’m eliminating or demoting you, it’s not the first conversation.” He then recaps specific instances, highlighting “things I can point to that are as concrete as possible.”
What to Do When Growth Outpaces Good Employees
During periods of rapid scaling, role expectations and responsibilities can grow faster than individuals. Rapid change can impede the performance of previously model employees and require a swift decision. Building a great team, according to Ryan, requires having difficult conversations and making hard decisions during periods of change. He confesses, “I’ve lost some people” after he informed them “We’re going to have to split your division or we’re going to have to hire someone above you.”
It’s important to frame such decisions in context, he explains, by saying to them, “I don’t think other people are going to hire you for VP of Marketing for 300-person companies either. . . . I think you’re really a director-level right now. I think you’re going to get to VP sometime, but just not yet.” Sometimes, Ryan notes, ego will prompt the person to leave.
In some cases, the individual may recognize that the requirements for the position have—at least temporarily—outpaced their ability to keep up. When that happens, Ryan and Hodgson recommend reassigning roles to give the employee a chance to grow with the company in the future.
We have to constantly remind people that the fact that you were going from A to B and someone was brought in does not mean you won’t get to B. You’re just not going to get to B right now. That person also has a career path. They might have a short stop there and you can learn some skill sets from them. Then they’re going to move on—on their path—and you can continue on in yours better-positioned than before.
Many companies who experienced bursts of rapid scaling advise that retaining good staff who align with the company culture—even if that means reassigning roles—ultimately benefits the company.
Part of it is, as the senior leadership, being able to look out and know when you’re going to be driving that change and let people adjust their roles at a time when they can get their feet wet and get comfortable before you start to shoot the bullets of change.
Popular resources advise startups to spend more time recruiting and retaining talent. Many focus on the importance of attracting and interviewing more candidates. But having a broader applicant pool doesn’t correlate to finding the right people for your team. We scoured hundreds of articles and talked with experts about common misconceptions about the recruiting process. We recommend the following sources for their practical insights:
Hiring Methods & Tactics
In “Your Approach to Hiring Is All Wrong,” Peter Cappelli, author, Professor of Management and director of the Center for Human Resources at the Wharton School of Business, underscores that companies spend more money on hiring today than ever before. But most make catastrophic mistakes. Cappelli reviews common recruiting errors and suggests better approaches. For instance, he cautions against the common practice of trying to make the recruiting process faster and less costly by using marketing techniques. Instead of casting a wide net to attract external talent, he advises, it’s “much better to go in the other direction: Create a smaller but better-qualified applicant pool to improve the yield.” Hiring internally can save money and time, he shares, “outside hires take three years to perform as well as internal hires in the same job, while internal hires take seven years to earn as much as outside hires are paid.”
Sam Altman in “How to Hire” advises that, after you figure out your vision and get product-market fit, CEOs should spend “between a third and a half of your time hiring.” In addition to advising how to better source and sell qualified candidates, and build a pipeline, he advises, “have people audition for roles” by working with them on a non-critical project as a paid contractor. Working together is the only way to judge if the person will fit within your company.
Overviews of Recruiting Stages
In “Recruiting—The Third Crucial Startup Skill,” David Skok concludes that relying on outsourcing recruiting no longer works—that successful startups are those that are building in-house recruiting muscles early in their lifecycle. He identifies four primary parts of the “recruiting funnel”: sourcing, evaluating and selling, closing, and training.
In “Hard To Do, And Easy To Screw Up; A Primer On Hiring For Startups” HBS senior lecturer and startup advisor Julia Austin shares tips on hiring strategies, including sourcing, writing better job descriptions, how to conduct interviews and check references, selling your company to desired candidates, and inviting top candidates to work on a small project prior to hiring.
“Debugging Hiring,” a slide deck by Dan Portillo of Greylock Partners, reviews the 3 stages of recruiting—sourcing, evaluation, and conversion—and shares common mistakes made at each level as well as the questions you need to answer to avoid them.
Understanding the Costs of a Bad Hire
“The Cost of a Bad Hire Can Be Astronomical” Society for Human Resource Management 2017, The cost of recruiting, hiring and onboarding a new employee can be as much as $240,000.
In “The True Cost Of A Bad Hire—It’s More Than You Think,” Falon Fatemi, founder and CEO of Node—an AI platform that delivers personalized business intelligence to help entrepreneurs—recommends several tips for making better hiring decisions, including prioritizing references and creating a way to work together before hiring. She recommends, setting clear expectations and advises, “Hire carefully and fire quickly, and you’ll get it right more often than not.”
In “Gilt Groupe’s CEO on Building a Team of A Players,” Kevin Ryan advises, “Don’t let a bad situation fester. A poor manager can ruin morale and damage a company’s DNA.” No matter how well you think you know your organization, if you suspect something’s wrong, it’s probably worse than you imagine. You can’t let those situations continue. They’re just too destructive.”